What Yield Curve Inversion and Low Interest Rates Mean for Idaho’s Housing Market

You’ve seen the rumors: some economists fear a coming recession, while others like the Federal Reserve say recession is unlikely. Economic indicators are complex. While markets are currently strong, signs of a downturn determine policy and speculation. Recently, the yield curve on bonds inverted, a warning to many investors of possible economic trouble to come. But what does this mean for the housing market and home loans in Idaho?

Despite speculation, the state of the housing market is looking stable. With low interest rates recently cut even lower, the Treasure Valley’s competitive low-supply, high-demand market isn’t likely to lose steam any time soon. Housing prices continue to set records in the area, but with recent indicators, investors should be aware of possible changes in the housing market.

Yield Curve Inversion

Faith in certain long-term investments has fallen in the last few months, leading to shorter-term bonds paying out at higher rates than long-term investments. This is far from typical, as investors expect a larger payout for having their money tied up longer. In August, the yield rate for the 10-year Treasury bond fell below the yield rate for the 2-year bond. The last time this occurred was in 2007, just prior to the recession. In fact, yield-curve inversions like this one have preceded every recession in recent history, as little faith in future markets keeps investors from tying their money up for long.

But in spite of these fears, the economy shows strength in low unemployment and high consumer spending. We see this strength in the Treasure Valley housing market, where home prices continue to go up, spending less average time on the market this year than in 2018, according it IMLS data.

The housing market is on a much more stable foundation now than it was in 2008, with low mortgage rates and competitive entry in a low-supply market. ATTOM Data Solutions reports that home prices only went down in two of the last five recessions, meaning strength of the housing market can exist somewhat independently of other economic factors. This year, mortgage lending is strong, and the housing market sits on a safety net of low inventory, which will keep prices propped up for the near future. With low interest rates, buyers can expect lower monthly payments than they might be able to find renting, making the appeal of home ownership especially lucrative.

Low interest rates

In July, the Federal Reserve cut interest rates by 25 basis points, or about a quarter percent—the first cut since the Great Recession. On September 18, the Federal Reserve cut rates by another quarter percent in the hopes of maintain the economy’s growth. National average 30-year fixed mortgages already fell from 4.71% to 3.74% from last year; this new interest rate cut could bring that average even lower.

Idaho’s 30-year fixed mortgage rates were 3.50%, as of mid-September, a number that has steadily been on the decline in recent years. Lower interest rates mean more affordable mortgages; home buyers can expect lower monthly payments, and home owners can refinance for better rates. This makes home ownership appealing even at a time when the Treasure Valley is seeing record-breaking home prices and average monthly rent. We Know Boise reports the average rent in Boise costs $1,450 per month, an 8.7% increase from last year. With increases like this, declining mortgage rates might be enough to spur the continued growth of Idaho’s housing market and keep home ownership possible.

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Market indicators are increasingly complex. With many signs pointing to an economic downturn, Idahoans are asking if we can expect the same level of growth and competition in the housing market. Despite a growing lack of faith in certain long-term investments, real estate in the Treasure Valley looks to remain lucrative with low mortgage rates and high demand. Do you see signs of a downturn in Idaho’s housing market? Do you think a recession would have a substantial effect on home prices? Find 208.properties on social media to share your thoughts, comments, and experiences. We can’t wait to hear from you.